Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

Given this risk, we thought we'd take a look at whether Zamaz (LON:ZAMZ) shareholders should be worried about its cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for Zamaz

How Long Is Zamaz's Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. In February 2023, Zamaz had UK£794k in cash, and was debt-free. Looking at the last year, the company burnt through UK£353k. Therefore, from February 2023 it had 2.2 years of cash runway. Arguably, that's a prudent and sensible length of runway to have. You can see how its cash balance has changed over time in the image below.

Is Zamaz's Revenue Growing?

Since we don't have data on Zamaz's cash burn last year, we'll focus on its revenue as measure of growth. Pleasingly, the company produced stunning operating revenue growth of 161% over the last year. In reality, this article only makes a short study of the company's growth data. You can take a look at how Zamaz is growing revenue over time by checking this visualization of past revenue growth.

How Hard Would It Be For Zamaz To Raise More Cash For Growth?

While Zamaz's revenue growth truly does shine bright, it's important not to ignore the possibility that it might need more cash, at some point, even if only to optimise its growth plans. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Since it has a market capitalisation of UK£75m, Zamaz's UK£353k in cash burn equates to about 0.5% of its market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

How Risky Is Zamaz's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Zamaz's cash burn. For example, we think its revenue growth suggests that the company is on a good path. And even its cash runway was very encouraging. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for Zamaz that investors should know when investing in the stock.

Of course Zamaz may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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